The Four Major Take-A-Way's From the Big "I"'s 2016 Best Practices Study

Agencies noted modest decline in organic growth, but steady profitability

Agency Checklists, MA Insurance News, Mass. Insurance News

Slow growth, an aging workforce, increased market consolidation and the rise of “insurtech” and other technologies are the most pressing issues facing the independent agency system right now according to the results of the 2016 Best Practices Study.

Now in its 24th year, the annual benchmarking analysis, conducted in partnership with Reagan Consulting, surveys 260 select agencies across the nation during a three year cycle. The study, first initiated in 1993, was created with the aim of helping independent agents improve their agency’s performance in order to create higher valued agencies.

“The 2016 Best Practices Study provides important information to help identify the business practices and methods that propel the top firms to the performance levels others seek to match,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “These are challenging times for the independent agency system as slow growth, record consolidation, an aging workforce and threats from technology upstarts impact even the top performing agencies. The Best Practices Study is poised to help all agencies address these challenges.”

The four key challenges facing the insurance brokerage industry this year:

According to this year’s crop of “Best Practices” agencies, the following four issues are the main challenges facing the industry this year.

Growth: The average Best Practices firm grew organically by 6.9% in 2015, down from the recent high of 9.0% in 2012. While growth has slowed, the Best Practices agencies have found that specialization can enhance growth and create new revenue streams.

Consolidation: The consolidation pace has steadily increased since 2009, which M&A activity temporarily cooled due to the Great Recession. According to SNL Financial, 469 transactions were announced in 2015. The Best Practices agencies have been active in the acquisition market enhancing their footprint and increasing their agencies’ value.

The workforce is aging: The average age of the employees at most agencies has significantly increased. Savvy firms are placing an emphasis on early succession planning for all key leadership positions. Best Practices agency recognize that their future independence hinges on creating an environment that attracts and retains talented employees to successfully perpetuate their business.

Technology: New technologies may disrupt the traditional broker model. According to CB Insights, a firm that tracks technology investments in the insurance industry (which they call “Insurtech”), there were 82 investments in insurance start-ups during the first half of 2016 totaling more than $1 billion. These start-ups are permeating every segment of the insurance industry. Best Practices agencies are ensuring that they are well-informed on new technologies and products and continue to provide their clients with the expert advice and stellar service that consumers expect.

“The 2016 results indicate that Best Practices agencies continue to show that over the past 23 years that the study has tracked these benchmarks, agencies continue to adapt and lead the way to a brighter future, regardless of the challenges they face,” says Robert Rusbuldt, Big “I” president & CEO. “The independent insurance agency system remains stable and strong, despite various challenges.”

Ten Massachusetts agencies are participated in this year’s study

Agencies are chosen to participate in the “Best Practices” study via a nomination process. In order to be considered, an agency’s nomination must be forwarded to the Big “I” and Reagan Consulting through either a Big “I”-affiliated state association or through an insurance company. In general, agencies are selected based upon certain criteria including outstanding management and financial achievement in “…six revenue categories (less than $1,250,000; $1,250,000 to $2,500,000; $2,500,000 to $5,000,000; $5,000,000 to $10,000,000; $10,000,000 to $25,000,000; and more than $25,000,000). Once selected, the agencies are part of the benchmarking study for a three-year cycle.

This year, which marks the first year or a new three-year cycle, 10 Massachusetts independent agencies were chosen to participate and are listed below:

Chase & Lunt of Newburyport
FBInsure of Taunton
Greylock Insurance Agency of Pittsfield
J.K. Olivieri Insurance Agency of Middleboro
MTM Insurance Associates of North Andover
Mid-State Insurance Agency of Worcester
Risman Insurance Group of Medford
Rogers & Gray Insurance Agency of South Dennis
T. Edmund Garrity & Co. of Cambridge
Tetrault Insurance Agency of New Bedford

How to obtain an official copy of the 2016 Big “I” Best Practices Study

For Massachusetts insurance professionals interested in obtaining a complete copy, the report can be purchased directly from the Big “I”. The e-book version costs $59.95, while a hardcover version with mail delivery is $99.95.